Kestrel Group Ltd 10-Q

Item 4. Controls and Procedures Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, have evaluated the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and that such information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, to allow for timely decisions regarding required disclosures. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that, because a material weakness in our internal control over financial reporting existed at December 31, 2024 and had not been remediated by the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report on Form 10-Q. This material weakness in our internal control over financial reporting and our remediation efforts are described below. Material Weakness in Internal Control over Financial Reporting Our management, including our Principal Executive Officer and Principal Financial Officer, identified a material weakness related to our internal control over financial reporting for the financial statements of the Kestrel Group LLC and its subsidiaries. This material weakness existed prior to the consummation of the acquisition. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. These included: • Control activities over financial reporting were not sufficiently or appropriately designed or implemented; additionally there is a lack of documentation, review and approval of control activities over key balances recorded to the financial statements of Kestrel Group LLC and its subsidiaries, Kestrel Insurance Agency, LLC and Kestrel Service Corporation; • Ineffective control activities and monitoring controls due to a lack of segregation of duties and insufficient analysis of certain accounts recorded at Kestrel Group LLC; • Ineffective control environment due to an insufficient number of accounting personnel with an appropriate level of knowledge and expertise related to our technical accounting matters over financial reporting over revenue recognition; • Controls over the data used, as well as the completeness and accuracy of reports used in the revenue recognition process were ineffective; • Information technology general controls are not sufficiently or appropriately designed or implemented over in-scope business processes and financial reporting systems for Kestrel Group LLC. Remediation Measures To address the material weakness described above, we have designed and implemented new and enhanced controls to ensure that: • in-house accounting personnel have training to ensure they have the relevant expertise related to technical accounting matters, particularly in revenue recognition; • there is greater segregation of duties and procedures to emphasize analysis of accounts; • many existing and proven Maiden controls are being integrated throughout the Kestrel Group to ensure full compliance; • Kestrel IT will be incorporated into the Maiden information technology general controls environment. We believe the actions described above will be sufficient to remediate the identified material weakness and strengthen our internal control over financial reporting. However, the new and enhanced controls have not operated for a sufficient amount of time to conclude that the material weakness has been remediated. Further, the integration of the legacy Kestrel and Maiden businesses can also expose us to risks that material weaknesses may not be promptly resolved, potentially delaying completion of our consolidated internal control assessment and impairing our financial reporting. We will continue to monitor the effectiveness of these controls and will make any further changes management determines appropriate. Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide an absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. 84 PART II - OTHER INFORMATION Item 1. Legal Proceedings See " Part I, Item 1 - Notes to Condensed Consolidated Financial Statements (unaudited) Note 11. Commitments and Contingencies " for an update on legal matters. Except as disclosed above, there are no material changes from the legal proceedings previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025.